An Online Chat About Retention Misconceptions

I would like to depart from my normal column format and share with you a client's e-mail (the name is withheld to protect privacy) and my responses to this e-mail because, as my wife said, “This is a textbook on retention.” My client is represented by the letter “E” as in e-mail, and my responses are represented by the letter “S” as in Scudder.

E: As a club owner for 29 years, I believe that two major industry misconceptions involve the 14 percent market penetration level and the challenges of retention. These two critical areas have been studied for years and serve as a sore point indicative of the failings of our industry. Hearing that 86 percent of the population rejects our services is becoming more than annoying.

S: Actually, nearly 30 percent of the U.S. population is likely ineligible for membership due to age, indigence, gross obesity, etc. A realistic number of eligible members starts at somewhere near 167 million. (The U.S. population is 298.4 million, according to a July 2006 estimate. Subtract 30 percent from that, and then subtract 43 million current club members to arrive at the available prospective members.)

E: Having some consultant guru (not you, Michael) blast the industry for its meager retention of 73 percent is ignoring the realities of current lifestyles, employment pressures, etc.

S: I don't know where that number comes from, but I hold it to be inaccurate. The surmised retention number for our business is 60 percent. Based on my study of years of industry data — including my yearly study of memberships sold compared to net memberships at the end of the year — I contend retention is more like 50 percent. As for retention ignoring current lifestyles, employment pressures, etc., there's no doubt that these play a factor, but a number is statistically relevant if arrived at in the same method.

E: Regarding retention, we are also not presenting the full picture. Is 60 percent good or bad relative to what? Is there another expenditure in time and disposable money in which to compare?

S: Comparisons have been attempted with other leisure industries and currently with retail/service industries with both high capitalization costs and high service costs like ours, but nothing has really come out that's a solid comparison. Do you have one?

E: Do you go to the same restaurant three to four times per week? No. You get bored with the same place. This is our challenge, and we don't have the derived demand of hunger, nor do we necessarily have the variety of a full-service restaurant.

S: Your analogy is a bit off. According to surveys, the average American eats out more than four times a week. The average club member attends his/her fitness facility about 1.75 times a week. However, you make a good point with “derived demand.” We do have a derived demand. It is based on well-being and looking and feeling good. And many restaurants are not full service — they are limited-menu, limited-scope and have chosen to serve their niches well. That is what is now happening with the health club business — not necessarily choosing niches, but as well-funded “bigs” come into marketplaces, savvy operators are forced to choose limited menu offerings and become as good as they can be in those venues.

E: Has anyone truly costed out a comprehensive program of retention? In addition to all existing services, we should figure in some time for a staff member to provide information, fitness updates, motivational tools, etc., for each member. For a 2,000-member club, that is 1,000 hours of staff per month.

S: What I have witnessed in many client clubs is one retention manager at a cost of usually $25,000-$30,000 salary/base per year and a bonus structure based on increases in participation and thus higher member retention. The total cost is not much more than $35,000 a year in a 2,000-member club. The net effect is usually five percentage points or more, so if you increase 60 percent retention to 65 percent in a 2,000-member club, you save 100 members a year at, say, $500 per member. That is $50,000, which cost you $35,000. Thus, a net return on investment is more than 40 percent. Not bad in my book.

Do the numbers yourself to see what you come up with. If you don't want to do that, contact one of the retention management companies. Their cost of upwardly affecting retention is even lower than Iillustrated above.

Michael Scott Scudder owns and operates MSS FitBiz Connection, an online-based club consulting and training service. Scudder can be reached at 505-690-5974 or mss@michaelscottscudder.com.